Netflix Adds 5.1M Subscribers, Beating Wall Street Forecasts

Netflix delivered third-quarter results above Wall Street expectations in many categories, including a gain of 5.1 million subscribers from the previous quarter.

Total revenue of $9.825 billion clipped analysts' consensus expectation for $9.77 billion.

Earnings per share of $5.40 and the total subscriber tally of 282.72 million beat the Street forecasts of $5.12 and 281.5 million, respectively.

Free cash flow, which Netflix didn't actually have until a few years ago, surged to $2.194 billion from $1.888 billion in the year-ago quarter. For the full year, the company upped its free cash flow guidance to between $6 billion and $6.5 billion, citing improved operating income trends.

The release of quarterly Netflix subscriber numbers is about to come to an end, as Netflix told investors earlier this year that it will stop releasing the figures starting in the first quarter of 2025. Unlike other metrics, executives argue, subscriber totals do not offer the best sense of the company's financial condition.

Investors have already been scrutinizing the overall strategy and looking to see if price hikes and the introduction of paid password sharing and advertising can offset the flattening of the subscriber curve. The new way of communicating reach could already be seen in the company's quarterly letter to shareholders, which said the company reaches 600 million viewers globally (given the number of people watching per subscription).

"Engagement on Netflix is healthy: around two hours a day per paid membership on average, despite the impact of paid sharing," the letter noted. "When you isolate owner households (which excludes the impact of paid sharing), view hours for those owner households rose year over year in the first three quarters of 2024."

Netflix stock has powered through any uncertainty, hitting a 3-year high of $736 earlier this month before pulling back a bit. It closed today at $687.65 before perking back up 4% in after-hours trading due to the results.

Since May 2022, a low point for the company as it reported back-to-back quarters of subscriber declines and appeared to be succumbing to pressure from new streaming rivals, shares have roared ahead by 340%. The surge has prompted a bear-bull debate about whether the stock is overextended given the company's profit trajectory.

Some analysts believe the fairly quick traction for paid password sharing and advertising could mean the stock is getting to be overvalued. These new revenue buckets "are likely pulling forward future growth," argued Barclays analyst Kannan Venkateshwar in a recent report.

The ad tier, which rolled out nearly two years ago in 12 countries, accounted for 50% of sign-ups in the third quarter, the shareholder letter said.

Nevertheless, the letter cautioned, "It's still very early for our advertising initiative. As we said last quarter, it takes time to build a new revenue stream and we don't expect ads to be a primary driver of our revenue growth in 2025. The near term challenge (and medium term opportunity) is that we're scaling faster than our ability to monetize our growing ad inventory. While this creates a short term drag on [average revenue per member], we are balancing building ads scale (for more meaningful ads revenue and ARM contribution over time) while still delivering healthy overall revenue growth in the near term (as noted, we expect our total company revenue to grow 15% year over year in 2024)."